Stateline reports that districts courts in Arizona and New Hampshire have ruled that pension reform requiring higher contributions from employees are unconstitutional.
Maricopa County Superior Court judge Eileen Willet, argues, "The state has impaired its own contract...By paying a higher proportionate share for their pension benefits than they had been required to pay when hired, [state workers] are forced to pay additional consideration for a benefit which has remained the same."
Other states where pension modifications are being challenged by unions include Florida, Nebraska, and New Jersey. As the article notes this may be one reason why states tend to pursue the path of least resistance (and least fiscal impact): changing benefits only for new hires.
The extent to which the terms of a pension formula are protected depends on how statutes are written. In Arizona the constitution states that upon hiring, public employees enter into a contract with their employer and agree to split the contributions to the pension plan 50-50. Arizona's move to increase the employee share to 53 percent runs afoul of this provision according to Judge Willet. New Hampshire's constitution is not this explicit. The court bases its ruling on previous case law that forbids the state from contract impairment.
These rulings point to the unpredictable future of pension reform. Where states and local governments continue to be constrained by actions that prevent pension plans from being modified for current employees the options left are equally painful: layoff workers, raise taxes, issue debt. There is also the "soft bailout" scenario, considered by Michael Greve. That road, he argues, leads the U.S. to devalued pensions and an Argentinian future.
If you do not like the terms of a contract, do not become a party to that contract. Once a party to a contract you are bound to perform according to its terms. Not rocket science.
Most public sector DB plans in the U.S. require contribution rates similar to FICA contributions. Guess what? We are adults and we get to meet our obligations in life.
By all means reform public pensions, but do so prospectively, legally, morally. Look at our conservative buddies in Utah, they pulled this off two years ago. They did not have to sell their souls to theft and depravity. The need not explain to thier children why their parents are theives.
Private Sector Pension Plans cannot reduce pension accruals for PAST service but (as explicitly allowed by ERISA) can and ROUTINELY DO (when financial circumstance necessitate) reduce the rate of accrual for future service and/or end the DB Plans completely.
There is absolutely ZERO reason why Public Sector workers should be treated BETTER than the taxpayers who pay their way.
Public Sector Plans are Typically multiples greater than their Private Sector counterparts ... with TAXPAYERS paying for 80-90% of total Plan costs.
This is patently absurd.
The financial rape of taxpayers by the public sector must end now !